1. Start investing early

When you’re young, time is on your side. That’s especially true when it comes to investing. And the earlier you start the better, according to Dr. Brandon Renfro, a certified financial planner and an assistant professor of finance at East Texas Baptist University.

“Earnings from investments compound over time,” Dr. Renfro said. “The longer you give yourself to earn that compound return, the more money you will have when you reach a goal, such as retirement.”

For example, let’s say you invest $1,000 when you’re 25 in an investment account that earns 5% interest, compounded annually. Even if you don’t save another dime, your account will be worth $2,653.30 by the time you’re 45. Without you doing anything at all, your money more than doubled. If you continue to contribute some money to your account each month, your money could grow even more, and the longer you let your money sit in an investment amount, the more it will increase in value.

The market fluctuates, moving up and down, dramatically sometimes. But over the long term, the market produces regular returns. According to the financial firm Morningstar, the long-term average return from the stock market is near 10%.

Investing while you’re young allows you to ride out any short-term losses so you can take advantage of gains over the long-term. Even if the market dips over the near term, over the 20- to 30-year timeframe, you’ll see reliable growth rates.

2. Decide how much to invest

When deciding how much to invest, it’s important to take your goals into consideration. If you have high-interest debt or if you don’t have an emergency fund, it may make more sense to pay down your debt and build a small savings account before you invest.

After that, think about your long-term goals, such as planning for retirement. You’ve likely heard experts recommend that you save millions of dollars, but don’t let that scare you. When you’re just starting out, it’s important to start saving whatever you can and to keep contributing consistently.

Vanguard, one of the biggest investment companies, recommends that you save 12% to 15% of your income for retirement. If that sounds impossible right now, save what you can afford, even if it’s just $25 per month. Over time, those small amounts will snowball, helping you build a sizeable nest egg.

If your employer offers a 401(k) retirement plan and matches contributions, try to contribute enough to qualify for the full match. That’s free money you’d otherwise leave on the table.

3. Understand what you invest in

When you’re ready to start investing, it’s important to think about what kind of account you want to open. There are three core investment account types:

• Employer-sponsored plans: Some employers offer retirement investment accounts to their employees, such as a 401(k) or 403(b). You may even be eligible for an employer contribution match, putting more money toward your goals. There are tax benefits to contributing to these plans, helping you save money at tax time.
• Individual retirement accounts (IRA): An IRA is a great way for you to start saving for retirement on your own, outside of an employer-sponsored plan. There are traditional IRAs and Roth IRAs, which both offer tax benefits.
• Individual investment accounts: Another way to save is by investing in an individual taxable account. There are no tax benefits to these accounts, but they also don’t have limitations on contributions or withdrawals like employer-sponsored plans or IRAs do. If you’re saving for a goal beyond retirement, like buying a home, an individual investment account is the best choice.

According to Natalie Pine, a certified financial planner and managing partner of Briaud Financial Advisors, IRAs and employer-sponsored accounts are strong starting points.

“There is no wrong way to save, but when you are young, a Roth IRA, 401(k), 403(b) is a great option,” Pine said. “You pay low taxes now and have tax-free growth for the rest of your life and the lives of your beneficiaries.”

Once you’ve chosen an account structure, you can think about what type of asset classes and investments you want to make. There are several different investment options:

• Stocks: When you buy a stock, you’re purchasing a share of a company like Apple or Google. Your gains or losses are dependent on the company’s performance and trends in the stock market.
• Bonds: Bonds are loans you make to the government or corporation in exchange for interest payments over a set time period.
• Mutual funds: With a mutual fund, you pool your money together with other investors to purchase a mix of stocks, bonds, and other securities that would otherwise be too expensive to purchase on your own.
• Exchange traded funds (ETFs): Like mutual funds, ETFs are pooled investment options that allow you to invest in a diversified portfolio. However, they’re traded like stocks on the stock exchange.
• Index funds: An index fund follows the performance of a specific market benchmark, such as the S&P 500 Index. The fund’s manager will a preselected collection of hundreds or even thousands of stocks and bonds, diversifying your portfolio.
• Options: When you invest in options, you create a contract that allows you to buy or sell a security at a fixed price within a specific period of time.
• Cryptocurrency: Cryptocurrency is a digital representation of assets used to buy and sell goods; one of the most well-known versions is bitcoin. It’s a very risky and volatile investment options, but it’s gaining popularity.

4. Choose an investment strategy

Next, think about your investment strategy. Consider your own risk tolerance. Some people are comfortable taking on more risk, thinking it’s worth it to potentially see high returns. Others get panicky when they see the market dip, and prefer more conservative investments that offer lower, steadier returns. Choose an investment strategy that works for your comfort level.

When it comes to your financial goals, consider how long you have until your target date. For example, if you’re planning on retiring in 30 years, you can choose a more aggressive portfolio that’s more heavily invested in stocks.

If your goal is in the short-term, like you plan on buying a home within the next five years, you want to invest more conservatively. You may put your money in a high-yield savings account or invest in low-risk bonds.

The most important part is simply getting started.

“While it is important to plan, don’t let the details overwhelm you to the point of inaction,” advised Dr. Renfro. “It’s better to get started now understanding just the basics than to keep putting it off.”

If you’re feeling overwhelmed, consider investing through a robo-advisor. With this approach, an online broker like Betterment or Wealthfront reviews your financial goals and risk tolerance and comes up with a comprehensive investment plan for you.

The robo-advisor will invest your portfolio in a range of ETFs, mutual funds, stocks, or bonds, and will rebalance your portfolio as you approach your investment target dates. Many robo-advisors have low fees, and have no account minimums, so you can invest even if you don’t have a lot of money.

Check out the best robo-advisors of 2019 to get started.

5. Automate your investments

According to Pine, consistency is key to your success as an investor.

“With regard to investing, consistency is essential to avoid emotions driving decisions that ultimately lead to poor performance,” she said. “If you stick with a system, whatever that may be, you are more likely to weather various storms than if you trade around a lot and catch investments at the wrong time.”

Making regular contributions will help you build long-term wealth. When you’re short on cash each month, finding extra money to invest may feel impossible. However, there are different strategies you can use to invest, even if you don’t have a lot of cash:

• Pick an investment account with a low minimum: Some discount brokers have very low account minimums. For example, Fidelity and Charles Schwab have $0 minimums, so you get started with just a few dollars.
• Invest your spare change:Investment apps like Acorns allow you to engage in micro-investing, where you invest your extra change. The app syncs to your bank account or credit card. Every time you make a purchase, the app rounds it up to the next dollar, and deposits the difference to your investment account. For example, if you pay $2.53 for a cup of coffee, the app would deposit $0.47 into your investment account. Over time, those small amounts can add up.
• Set up recurring contributions: If possible, set up recurring withdrawals into your investment account. Setting up automatic deposits will take out the money before you can mentally spend it, helping you stay on track.
• Deposit windfalls: If you receive any money unexpectedly, such as a bonus at work, your tax refund, or a gift from a relative, deposit that money directly into your investment account. It’s extra cash, so you won’t need it to make ends meet, and it can help you reach your long-term goals.

Always keep learning

As a new investor, the most important thing to do is to get started as soon as possible. The earlier you invest, the more time your money has to grow.

After you’ve opened an account and made your initial investment, spend some time learning about your investment options. There’s always something new to learn, and growing your knowledge base can help you make more informed investment decisions, which can pay off over the long run. And keep reading on MagnifyMoney to learn more about investing!